Robinhood Has My Attention

For many Americans making just enough to get by and with minimal balances in their bank accounts, the idea of getting into investing probably sounds laughable. Even for those that might be able to set aside a small amount each month to put into the stock market, commissions and fees can quickly eat up any chance at a positive return.

Let’s take the hypothetical scenario of a 20-something waiting tables. Maybe she has $100/month that she would like to put into the market. Since that budget already puts shares of Google (GOOG), Apple (AAPL), and Amazon (AMZN) out of reach, she might aim for some affordable blue-chip stocks, like Coca-Cola (KO), Microsoft (MSFT), or General Electric (GE). The problem is that brokers charge commission fees to process a transaction. For many online brokerages, those fees amount to $7.95 to $10 per trade. So even if our waitress wants to buy only a couple shares, she still has to pay as much as $10 in fees. On a $100 investment, she’s already starting with a 10% loss.

Zero-Fee Trading

Enter Robinhood, an app developed by Vladimir Tenev and Baiju Bhatt, Stanford grads with years of experience in finance. Backed by investments from Google Ventures, Andressen Horowitz, Index Ventures, and Ribbit Capital and protected by the SIPC—the same corporation that insures investors’ money with E*Trade, Fidelity, and others—Robinhood aims to make investing a feasible option for people who can only afford to dabble in the market.

By eliminating commissions altogether, our waitress can put the entirety of her $100 budget into the market without starting out behind the 8-ball.

The App

Robinhood boasts a slick, minimalist interface, with easy visual cues such as a light background when the market is open and a dark background when it’s closed. With real-time data, you can view a stock’s trends back as far as one year, and basic analytics such as 52-week high/low, P/E ratio, and dividend yield are also available.

Buying shares is as simple as pressing the “Buy” button on a given stock, choosing the number of shares, rewviewing the estimated cost of your order, and swiping up to confirm.

Sustainability

Since other brokerages make money from commissions and fees, it might be concerning that Robinhood doesn’t have an apparent revenue stream. Fortunately, the creators of Robinhood have simply found other ways of monetizing their service. They plan on accruing interest from cash in users’ accounts, in much the same way as one might earn interest from cash in a bank. Additionally, as the user base expands, they hope to sell their trading volume to stock exchanges, who will pay for the additional liquidity that offers.

For Now

For now, the primary goal is to get users off of the waitlist and into the market. Even with the best laid plans and a strong infrastructure, it’s hard to know for certain whether the idea will work in practice. Still, as someone who is interested in investing but doesn’t have a lot of cash to put in, Robinhood has my full attention as a way for me to get started right now.

Update (12/17): I’ve just been accepted off the waitlist and have submitted my account for approval. Once it’s approved I can fund it and start investing real money through Robinhood. I plan on doing a follow-up post down the line with my thoughts on the experience.

Update 2 (12/26): My application remains pending. I’ve emailed support and they stressed patience as they try to onboard more users. It’s hard to see how “onboarding” them helps if these people can’t get through the application process. These are the growing pains of a new startup, but it is frustrating nonetheless.